Business-to-Business E-Commerce Systems in the Sewn Goods Supply Chain

By Derek Jones, Walter Wilhelm Associates
March 2002

Introduction

The retail industry is passing through a critical period, when it has to counter the problems of demographic change, shrinking disposable income and increased competition.

This article discusses the challenges that these conditions impose on the supply chain, and, in particular, the Product Development area.

Changes in the Consumer Base

The first change that is starting to affect the retailers is the demographic change caused by a shrinking birth rate and the tendency for people to live longer.

This spawns two major effects –

• The increasing burden on the welfare state causes the tax and pension burden on the population to increase, thus reducing disposable income.
• The shift in population age causes the proportion of high spenders in the 22 – 34 year age group to shrink, whilst the 55 – 64 year group correspondingly increases. As the latter group historically spend substantially less than the former on clothes than the former, this also has the effect of reducing revenues.
  
  
  If these two effects are taken together, then the money spent on clothes is unlikely to rise significantly in real terms in the immediate future. This in turn, produces responses from the retailers who must protect both their profits and market share.
  

The Retailers' Responses

To protect profits and market share, the retailer has to take the following actions:

• Reduce Costs - to maintain profit margin
  
• Increase Variety - to maintain market share
  
• Buy more cheaply – to maintain margin
  
• Improve Design Quality - to increase market share
  
• Reduce Stocks - to reduce costs
  

These actions have corresponding effects on the next part of the supply chain, the manufacturer.

The Effect on the Manufacturer

The manufacturer is seeing a substantial decrease in the price that he gets for his products, and is, in consequence, being forced to move cutting and sewing progressively offshore, or simply to import from overseas contractors.

The retailer’s drive for increased variety and exclusivity has lead to an increase in the traditional two seasons initially to four. Some retailers are now rolling their seasons three or four times.

Design quality is at a premium, and, coupling this with the move of production overseas, there is profound difficulty in communicating the increasingly complex specifications to the needle point at widely spread locations.

The divergent need to both increase variety and reduce stocks mandates that point of sale data is closely connected to the cutting program to ensure that replenishment of only that which is selling is accomplished, and the resulting product is then freighted speedily to the stores.

Summary of the Changes

A summary of the change factors affecting the supply chain is as follows:

The consumer is spending less in real terms..

To maintain profits, the retailer is...

• Increasing variety
• Increasing design quality
• Buying more cheaply
• Reducing Costs
• Cutting Inventory
• Re-ordering only what is sold
  

To survive, the Manufacturer is....

• Moving cutting and sewing offshore
• Responding to immediate changes in production schedules dictated by sales figures
• Becoming an importer…
  

The Need for Control in Product Development

To further understand this, we must consider the Information Flow in the Supply Chain.

The area of Product Development lies between the range plan and manufacturing. Turning the range plan into a fully designed range of garments is a complex and time consuming business, which is traditionally not closely controlled, and furthermore has, on average, a 90% fall out between concept and order. Also, the Range Plan has to be constantly revised and modified to reflect the buying preferences of the consumer.

Naturally, this all takes a lot of time, and in turn places a limit on the rate at which new collections can be produced. The following graph shows the relative times taken on the main processes needed to take a product from concept to store –

It can be seen clearly that product development is by far the most time consuming task.

So, the supply chain needs a system which –

• Reduces time spent in product development
• Co-ordinates global development
• Produces a high quality specification for manufacturing and quality control purposes.
  

What Systems are needed?

The required systems must provide secure global communications that can be accessed under controlled conditions by a disparate community of companies. At one extreme will be the large retailer who may provide the host site within a large intranet system, at the other extreme may be a small factory in the Far East who manufactures product and only has a PC and a connection via an Internet Service Provider to the Internet.

The future will almost certainly see the whole community of Sponsors and Partners using a secure and capable facility provided by a Full Service Provider of E-business solutions, which offers application hosting on a Global basis.

The connections and communications would be realized by the use of thin client applications running at each site within the partnership and connecting to the Application Hosting Site.

Such a Business-to-Business (B2B) E-commerce system can be compared to an Electronic Envelope for sending product information anywhere in the world. This electronic envelope contains all types of product information including full colour pictures, specifications, patterns, markers, spreadsheets, fabric files, or any other electronic file.

As soon as the envelope is prepared and sent by a sponsor, all designated trading partners automatically receive email notification indicating that the package has been sent and is available for review. The package arrives within seconds on the web at the host site. Trading partners connect to the Internet and log onto the host site using passwords designated though the built in Security System. Each party has access to only the information designated specifically for them by the partner. All package information can be viewed on screen in color or printed.

The trading partner reviews and downloads the package information contained in the large envelope. Using the built in history function, partners can check the status on each package to find out who opened each package and when each package was opened. After reviewing the information, the trading partner may begin a dialogue with the sponsor about the style using the Issue Log.

The Issue Log is a centralized communication tool specifically associated with each style or package. Questions, confirmations, problems, clarifications and other topics are discussed between the sponsor and the sponsor's trading partners through the issue log. Each issue type is associated with a visual status flag designed to identify the content of the issue at first glance. This mode of communication eliminates excess phone and fax expenses. More importantly, it organizes all correspondence about a style so that the information is easy to locate and review.

The Electronic Envelope facilitates faster communication speeding the entire production process. Errors are eliminated due to more accurate information exchange. The entire product communication process costs less and is significantly more efficient and organized. All sending, receiving and corresponding can be accomplished from a personal computer 24 hours a day from any time zone.

The systems can also be used to access other computer data, for example, from the Sponsor’s ERP system, as described later.

How can B2B E-commerce systems assist in Product Development?

Design starts with an idea, and ends in the retailer’s dream, with products being purchased at full price by a consumer who is happy with the bargain and will return to buy again.

What is needed to achieve this ideal situation?

Early selection of ‘Winners & Losers’
It is vital to identify the products that are likely to be successful, at a very early stage in the process, to avoid doing unnecessary work on the 90% that are not going to be adopted. Frequently, this is governed by financial considerations, which leads to a need for an early ‘flash costing’ to determine the viability of a product. This provides a ‘gate’ near the start of the development process that either demands revision or rejection of a product that cannot be sold at the projected price point and show a sufficient margin. This, in turn, means that less styles are passing through the development path, already overloaded with the increasing variety of product, thereby enabling a reduction in the time from concept to store.

Conform to a strict timetable with constant reference to a critical path
When a very fast turn of collections is required, time is of the essence and meeting the in store date is critical. Late shipments inevitably mean lost sales. In these circumstances, the development process must conform to a strict timetable. Keeping track of this highly volatile process and taking corrective action where necessary, demands a live critical path system that constantly reports on the progress of each product and identifies potential bottlenecks.

Produce and refine a detailed and accurate product specifications
With manufacturing increasingly moving offshore, the quality of the manufacturing specification must be very high, and, to counter language problems, must be multi-lingual and rich in diagrams, pictures, and even video clips. Conversely, visuals of the product coming off the line must be readily visible in the home office to assist in the detection of problems before shipment.

Communicate and agree on changes on a Worldwide basis
During both the design phase and the production phase of a product, constant changes in detail are made. These must be communicated rapidly on a global basis to all who must know. In direct contrast to paper systems, people must be sure that the data appearing on their screens is both correct and up to date.

Link Design, Pattern Making, Marker Making, ERP & Retail Systems seamlessly
No single computer system can provide all the information needed to manage a sewn products enterprise. There are the tools used in the design and manufacture of the product, such as concept design, pattern design, marker making and synthetic data systems. Then there are the Management Information Systems which report on the manufacture, shipping, stock control and sales performance of each product. All these must be linked seamlessly together to provide the consolidated reporting so necessary to management of a fast moving consumer product.

Let us look at how this may be accomplished in practice –

Once the range plan is complete, rather than start product development completely from scratch, the designer uses sales information from the MIS system stored in previous seasons, and which can be used to identify ‘winners’. The system can now drill down into the pattern design system and retrieve the patterns used as a basis for the new style. When the costing point is reached, all the production markers made previously are available for viewing and comparison, as are the trim and labour cost figures. Seamless access to this bank of proven data makes the task of product development very much quicker and more accurate.

As development proceeds, a full product specification is prepared. Once the style is adopted, all details about the style, including bill of materials, labour cost analysis and size charts are downloaded to the MIS system for the sourcing, manufacturing, shipping and sales processes to take place. As these are in progress, summary data on manufacture and sales performance is periodically fed back into the Production Development system for future use.

So, when looking at the cycle of a product, the following questions can be answered:

• What was the estimated cost at the design stage?
• What did it actually cost to make?
• How did it sell?
• What was the actual margin?
• How much profit is attributable to the product?
  

This data is invaluable when starting a new product development.

If we consider the supply chain once more, the relationship of the systems can be seen in the illustration below –

The Requirements and the Rewards

Managing a linked computer system as described places higher demands upon management. Time scales are compressed, data flow is much improved, and thereby responses are demanded more frequently. An analogy that can be used is that of comparison of the current paper systems with a Progressive Bundle Unit in a sewing factory. Work in Progress between processes is high and reaction time is not critical, although the progress of product is necessarily slow. Should this latter be cured by installation of either a Unit Production or Workgroup System, which both predicate a low work in progress, then management response much be dramatically improved both in time and quality of decision. The installation of a B2B E-commerce system demands similar disciplines.

The potential rewards, however, are considerable:

• Shorter time from concept to store enabling collections to be rolled more frequently.
• Due to concentrating design work on likely ‘winners’ a higher design quality can be achieved.
• Better quality specifications mean better quality product.
• Critical path control means better delivery performance.
• All these mean better sales performance.
  

It is likely that those enterprises that adopt these advanced computer systems quickly will enjoy a competitive advantage over those who are slower so to do.